Supreme Court Dismisses SLP Upholding High Court Order Setting Aside Perverse ITAT Relief on Bogus Share Loss

Supreme Court Dismisses SLP Upholding High Court Order Setting Aside Perverse ITAT Relief on Bogus Share Loss

Issue

• Assessee & Return Filing: The assessee, a Non-Banking Financial Company (NBFC), filed its income tax return for Assessment Year 2014–15 declaring NIL income, which was initially processed under Section 143(1) with a refund issued.
• Scrutiny & Investigation Findings: During scrutiny assessment under Section 143(3), the Assessing Officer (AO) identified a share trading loss of approximately ₹1.98 crores in off-market transactions of private limited companies.
• Director’s Admission: Information from the Directorate of Investigation following a search and consequential survey revealed that the assessee’s director admitted on oath that an entry operator was involved in providing bogus entries for investments and share applications for a commission.
• AO & CIT(A) Disallowance: The AO treated the share trading loss as bogus and added ₹1.98 crores to the income. The CIT(A) dismissed the assessee’s appeal.
• Tribunal’s Reversal: The ITAT deleted the addition, holding that survey statements lack evidentiary value, the director had retracted the statement via affidavit, and the assessee was denied cross-examination.
• High Court Ruling: The High Court set aside the ITAT order as perverse, noting that:
  • The retraction occurred after two years and post-assessment, making it an afterthought.
  • There was no record of the assessee ever requesting cross-examination.
  • The Tribunal ignored the assessee’s non-cooperative attitude and key factual evidence.
• Special Leave Petition: The assessee filed a Special Leave Petition (SLP) before the Supreme Court against the High Court’s order.

• No Ground for Interference: The Supreme Court held that no case for interference was made out against the well-reasoned order of the High Court.
• SLP Dismissed: The Special Leave Petition filed by the assessee was formally dismissed.
• Outcome: Decided entirely in favor of the Revenue.

• Delayed Retractions Void: Retractions of sworn statements made after a prolonged delay (e.g., two years post-assessment) are routinely rejected as administrative afterthoughts unless corroborated by independent evidence.
• Factually Unfounded Relief Amounts to Perversity: A Tribunal order granting relief based on alleged procedural lapses (like denial of cross-examination) when no such request was ever made on record is legally perverse and liable to be set aside by higher courts.
• Supreme Court Deference on Perverse ITAT Findings: The Supreme Court will not entertain SLPs where the High Court correctly exercises Section 260A jurisdiction to overturn perverse and non-application of mind orders rendered by the ITAT.